These Are The Two Big Questions That President Trump's Nominee For The Federal Reserve Must Be Asked

Key Concepts

• Federal Reserve Board of Governors: Sets policy for the central bank, particularly interest rates.
• Inflation: Defined as reducing the value of a currency, often through excessive creation of it.
• Monetary Inflation: Inflation caused by devaluing the dollar, controllable by the Federal Reserve.
• Non-Monetary Inflation: Inflation stemming from events like natural disasters, wars, or government actions (e.g., tariffs, regulations).
• Currency Stability: Maintaining a consistent value of the dollar, crucial for efficient markets.
• Gold Standard: Fixing the dollar's value to gold to maintain stability.
• Commodity Basket: Using a range of commodities as an informal reference point to gauge the dollar's value.
• Prosperity vs. Inflation: The erroneous belief that economic growth inherently causes inflation.

Nomination of Steven Myron and Key Questions

President Trump has nominated Steven Myron to the Federal Reserve Board of Governors. Myron currently heads the President's Council of Economic Advisers. He is a potential successor to Federal Reserve Chairman Jerome Powell. Steve Forbes emphasizes the importance of senators probing Myron on two critical questions during his confirmation hearing:

1. How important does Myron think it is to have a dollar stable in value?
2. Does Myron believe that prosperity causes inflation?

The Importance of Currency Stability

The definition of inflation is reducing the value of a currency, usually, but not always, by creating too much of it. The Federal Reserve can directly affect this by making a stable dollar the chief goal of monetary policy. Forbes argues that currency stability is fundamental for efficient markets, drawing an analogy to fixed weights and measures. Just as the number of ounces in a pound or inches in a foot remains constant, the dollar's value should be stable to facilitate commerce effectively. He criticizes central bankers for not grasping the basic importance of currency stability.

Monetary vs. Non-Monetary Inflation

Forbes distinguishes between monetary and non-monetary inflation. Monetary inflation results from devaluing the dollar, which the Federal Reserve can control. Non-monetary inflation arises from external events like natural disasters, wars, or government policies such as tariffs, regulations, pandemic lockdowns, or higher taxes. He criticizes the current Fed boss Jerome Powell for focusing on tariffs, as the central bank can't seem to distinguish between non-monetary inflation emanating from events such as floods or the imposition of sales taxes and monetary inflation that comes from devaluing the dollar.

The Gold Standard and Commodity Basket

Forbes advocates for a stable dollar, ideally fixed to gold. He notes that gold has historically maintained its intrinsic value better than other assets. While a formal gold standard is currently considered "taboo," he suggests the Fed could use an informal range and refer to a basket of commodities. Commodities often quickly reflect changes in the value of the dollar.

The Fallacy of Prosperity Causing Inflation

Forbes challenges the notion that prosperity causes inflation, calling it "preposterous" but prevalent in central banks. He argues that the Federal Reserve is often "prejudiced against vibrant growth" due to this belief. He criticizes the idea that the Fed should attempt to stimulate or depress economic activity in the name of fighting inflation.

Conclusion

Forbes concludes by emphasizing the importance of Myron's stance on these two questions. He asserts that any policy other than a stable dollar is a "recipe for trouble." The key takeaway is that a stable dollar is essential for economic stability and that the belief that prosperity causes inflation is a harmful misconception that needs to be abandoned.